Traditionally, electronic funds transfers (“EFTs”) are submitted to financial institutions for processing to affect the movement of funds from an originating or ordering entity to a beneficiary or destination point. In order to effectively evaluate risk in these types of transactions it is necessary to identify the parties as precisely as possible.
In operation, upon initiation of an EFT, wire transfer data is forwarded to a central hub for data collection. The EFTs contain at least some information that identities one or more parties on the sending and receiving side of each transaction. In some cases, the information can be automatically analyzed and the origin and destination countries can be easily determined. In other cases, the information may be incomplete, irregular or indistinguishable.
Today, most financial institutions globally are required to identify and report transactions of a suspicious nature to a financial intelligence unit in the respective country. Thus, a bank must perform due diligence by ascertaining identities of transacting parties and monitoring transactions for suspicious activity. Financial institutions face penalties for failing to properly file currency transaction reports (CTRs) and suspicious activity reports (SARs), including heavy fines and regulatory restrictions.
To comply with existing regulations, many financial institutions utilize the services of special software to gather information about high risk individuals and organizations. These software applications monitor bank customer transactions. Transaction monitoring can be performed for various tasks including cash deposits and withdrawals, wire transfers, credit card activity, checking, share (securities) dealing and ACH activity. However, currently existing monitoring systems often yield inaccurate results due to incomplete participant information.
A component of anti-money laundering reviews is the risk ranking of cross-border transfers according to originator/beneficiary country pairings. The risk-ranking is complicated by the fact that the ability to identify the originator/beneficiary countries involved in any given wire transfer is not always straightforward. Often, information about the identity of the originator/beneficiary is not standardized, not complete, not consistent, and not predictable. While financial institutions in the United States are required to fully provide originator and beneficiary information, financial institutions in other countries are not subject to the same rules and therefore may omit necessary information or provide the information in a coded or indecipherable format.
In currently available processes for anti-money laundering review, a country must be identified for each EFT party in order to run subsequent steps. Thus, when the country of interest cannot be identified by the financial institutions involved in the transaction, a default country entry, such as “US” is entered so as to enable continued processing. This approach presents difficulties, since the default country may not accurately reflect the risk level attached to the country that the system was unable to identify.
Furthermore, when risk is detected, institutions are required to generate alerts or SARs, as set forth above. Currently, institutions generate thousands of false positive alerts monthly. If inaccurate identifications are made, the incidence of false SARs may be high, thus increasing costs required for follow-up investigations of the identified suspicious activity.
Accordingly, a solution is needed for more efficiently and accurately identifying country pairs involved in financial transactions in order to evaluate risk of money laundering activity with greater precision. With improved country identifications, risk levels associated with each EFT transaction would be better assessed.